MSCI Inc. (NYSE: MSCI), a leading provider of critical decision
support tools and services for the global investment community,
today announced the results of the MSCI 2024 Market Classification
Review.
Select highlights of this year’s review includes MSCI:
- Launching a consultation on the potential reclassification of
Bulgaria from Standalone to Frontier Market status
- Continuing to monitor the implementation of measures aimed at
improving the accessibility of the Korean equity market for
international investors, but also noting that the recent short
selling ban introduces market accessibility restrictions
- Noting recent improvement in the liquidity of the Egyptian
foreign exchange market while warning on the potential implications
of deteriorations reoccurring
- Continuing to monitor the market accessibility of the
Bangladesh equity market
- Highlighting the evolution of clearing and settlement cycles
across global markets
“In the face of market volatility, regulators in certain markets
around the world have proactively advocated for elevated market
accessibility standards. While we are seeing various developments
and measures announced and implemented, it’s crucial that any
actions toward enhancing market accessibility align with investor
expectations and that no new restrictions impede any forward
momentum,” said Dr. Dimitris Melas, Global Head of Index Research
and Product Development and Chairman of the MSCI Index Policy
Committee. “We will continue to evaluate how new and evolving
reforms impact global institutional investors’ market accessibility
and assess their effectiveness throughout the next market review
cycle.”
More information related to the MSCI 2024 Market Classification
Review, including the results of the 2024 MSCI Global Market
Accessibility Review, can be viewed at
www.msci.com/market-classification.
Consultation on potential reclassification of Bulgaria to
Frontier Market status
MSCI announced today the launch of a consultation on a proposal
for potential reclassification of Bulgaria from Standalone Market
status to Frontier Market status in one step, coinciding with the
May 2026 Index Review.
As part of MSCI’s August 2016 Index Review, Bulgaria was
reclassified from Frontier Market status to Standalone Market
status after a continuous decline in the size and liquidity of the
Bulgarian equity market. At the August 2023 Index Review, MSCI
implemented changes to the index construction and maintenance
methodology for the MSCI Frontier Markets Indexes. These changes
resulted in Bulgaria now having enough companies meeting Size and
Liquidity requirements for Frontier Markets.
MSCI welcomes feedback from market participants on this
reclassification proposal until April 15, 2025 and will announce
its decision as part of the MSCI 2025 Market Classification
Review.
Korea’s Market Accessibility
From 2008 to 2014, MSCI consulted with global market
participants on the potential reclassification of Korea from
Emerging Market status to Developed Market status. During this
period and the time that followed, market participants highlighted
key accessibility concerns including the limited convertibility of
the Korean Won in the offshore currency market; the rigidity of the
ID system that makes in-kind transfers and off-exchange
transactions onerous; and the lack of investment instruments
availability due to the restrictions on the use of exchange data
for the creation of financial products.
MSCI recognizes and welcomes the recently proposed measures
aimed at improving the accessibility of the Korean equity
market.
- Foreign exchange market: In
February 2023, improvements to the Korean foreign exchange (FX)
market’s structure were announced by the Ministry of Economy and
Finance (MOEF). Starting from January 2024, Registered Foreign
Institutions (RFIs) are now able to participate in the onshore
interbank FX market and engage in direct FX transactions with
banks. The pilot operation to extend trading hours has also been
initiated, with full implementation set for the latter half of this
year. Additional time is required to assess the implementation of
these measures and the extent to which these infrastructure
improvements align the Korean FX market with global standards.
- Legal Entity Identifiers:
Advancements to the capital market were announced by the Financial
Services Commission (FSC) in January 2023. By the end of that year,
following appropriate regulatory modifications and the development
of relevant IT infrastructure, corporations began using Legal
Entity Identifiers (LEI) instead of the Investor Registration
Certificate (IRC) system. The requirements for reporting investment
details of each final investor associated with an omnibus account
holder were relaxed, and the scope of OTC transactions for ex-post
reporting was broadened. However, market participants have
expressed concerns about the complexity of the requirements needed
to obtain an entirely validated LEI, which is creating further
obstacles rather than simplifying market access for foreign
investors. MSCI will continue to closely monitor the implementation
of these reforms.
- Mandatory disclosures: As part of
the improvement measures announced by the FSC, the first phase of
the mandatory English disclosures (phased in by asset size and
foreign ownership percentage) started this year. In addition,
updates to dividend distribution procedures, announced by FSC and
MOEF last year, were implemented in 2024. Nonetheless, only a
minority of companies have embraced these measures.
It is important to note that the aforementioned reforms do not
address the issues arising from the limitations imposed by the
local stock exchange on the use of exchange data for financial
product creation. Additionally, in November 2023, authorities
enacted a full ban on short selling, introducing additional
accessibility constraints.
In response to COVID-19, Korea implemented a ban on short
selling on March 16, 2020. By May 2021, this prohibition was
temporarily revoked for securities listed in the KOSPI 200 and
KOSDAQ 150 Indexes. However, in November 2023, a full ban on short
selling was reimposed. While this ban is expected to be temporary,
sudden changes in market rules are not desirable.
As a reminder, potential reclassifications require that all
issues have been addressed, reforms have been fully implemented,
and market participants have had ample time to thoroughly evaluate
the effectiveness of the changes.
Improvement in the liquidity of the Egyptian Foreign Exchange
Markets
Due to low FX liquidity and the re-emergence of the FX queue,
foreign investors encountered repatriation challenges in the
Egyptian equity market in 2023. In May 2023, MSCI applied a special
treatment for Egypt in the MSCI equity indexes. This special
treatment deferred index review changes and the implementation of
corporate events aiming to address index replication concerns by
potentially reducing the number of changes in related indexes. MSCI
also highlighted the deterioration of Egypt’s market accessibility
as part of the 2023 Market Classification Review and warned that a
consultation on a reclassification proposal may be launched if the
market’s accessibility worsened further. In March 2024, the Central
Bank of Egypt enhanced currency availability by allowing the
Egyptian pound to depreciate and committing to shift to a more
flexible exchange rate system. With the clearing of the FX backlog,
which had been outstanding for international institutional
investors since early 2023, repatriation challenges were eased.
Given this material improvement in the market’s accessibility, MSCI
removed the special treatment for Egypt effective June 3, 2024.
“Significant frictions in the capital repatriation process
negatively impacting index replicability are considered an
uncharacteristic feature within Emerging Markets,” remarked
Jean-Maurice Ladure, Global Head of Index Management Research and
member of the MSCI Index Policy Committee. “If Egypt were to
re-encounter similar FX liquidity constraints in the near future,
MSCI could consider launching an off-cycle consultation on a
reclassification proposal for Egypt from Emerging Market status to
Frontier or Standalone Market status.”
MSCI welcomes the aforementioned positive developments and will
continue to closely monitor the onshore USD liquidity levels and
the capacity of foreign investors to repatriate their capital
without delays from the Egyptian market.
Market Accessibility issues in Bangladesh
In July 2022, the Bangladesh Securities and Exchange Commission
(BSEC) reinstituted floor prices for all listed securities. Since
then, the BSEC has gradually lifted these restrictions, yet six
listed securities still retain floor prices. In addition, market
participants have recently reported delays in capital repatriation
due to low liquidity in the onshore FX market.
As a result of these market accessibility issues, MSCI will
continue to apply the special treatment introduced in February
2023. This special treatment defers index review changes and the
implementation of corporate events aiming to reduce the number of
potential changes in the MSCI Bangladesh Indexes and mitigate
concerns on index replicability.
MSCI continues to welcome feedback on the accessibility of the
Bangladesh market and may consult with market participants in case
of further developments.
Evolution in Settlement Cycles of Global Equities
The path towards shorter cycles in equity clearing and
settlement mechanisms has continued. In May 2024, USA, Canada,
Mexico, Argentina, and Jamaica transitioned from T+2 settlement
cycles to T+1, while other markets, including the European Union,
the United Kingdom, Switzerland, and Australia, are evaluating the
possibility of reducing their settlement cycles to T+1 and are in a
consultation/review phase.
In response to these developments, MSCI sought feedback from
global market participants from December 21, 2023 to March 15, 2024
on the potential impact of these changes in their investment
processes. Market participants agreed that while operational
adjustments are necessary due to these changes, amendments from
index providers are not required. Furthermore, there is an
expectation among market participants that the trend towards
shorter settlement cycles will continue, ultimately establishing
T+1 as the new standard. Feedback received also reemphasized that
shorter settlement cycles must not introduce further operational
challenges and risk, such as pre-funding requirements.
Simultaneously, it was underscored that a lack of alignment in
equity settlement cycles across global markets is undesirable.
MSCI continues to closely monitor these developments.
-Ends-
About MSCI
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